What's a boiler room scam?

30 September 2010

The boiler room scammer is a very skilled operator: plausible, persuasive and psychologically manipulative.

It's because investors feel so foolish at being deceived that the authorities suspect instances of this type of fraud are far higher than reported.

The fraudster uses a potent mix of friendliness, coaxing and bullying to sell worthless, over-priced or even fictitious shares.

Key to the conman's success is hooking often experienced investors by dangling in front of them supposed opportunities – apparently unavailable anywhere else – to make a quick killing.

Through flattery and suggestion, the investor is made to believe that they have been specifically chosen to benefit from this golden opportunity.

There's an inside track to investment success, they tell you, and you're on it.

Spot the clues

Conversations often begin in a friendly manner. "One chap we know was sent flowers by a fraudster while he was lying in hospital," says Jonathan Phelan, the FSA's head of unauthorised business.

But after the initial buttering-up period the fraudster can quickly become aggressive and pressurise the investor into making a quick decision, as these investment opportunities always tend to require 'urgent' action.

The fraudster will sometimes claim that you promised to buy the shares in a previous conversation and if you renege on the deal now you'll be in breach of contract and subject to legal or regulatory action.

This is baloney. But the fraudster will use any method to bully you into parting with your cash.

Danny Cox, head of advice for stockbroker Hargreaves Lansdown, says: "Boiler room scams prey on vulnerable investors and are operated by those with no scruples or sense of morality. 

No reputable UK firm would ever ring you out of the blue and recommend you buy company shares, or ask you to move money overseas."

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